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While the RBA’s dramatic one per cent rate cut failed to impact weekend auction figures, there’s little doubt the long term prospects for the property market now look brighter.
If the analysts are right, the official cash rate will fall as low as five per cent before the year is out, which would substantially ease affordability pressures on homeowners and prospective buyers.
Further market stimulus delivered yesterday with the Rudd government’s announcement that it will double the first home buyer grant to $14,000, and triple it to $21,000 on new homes will also boost confidence.
Jason Anderson, senior economist at BIS Shrapnel told Mortgage Business that once consumers had digested October’s rate cut, market activity would improve.
“It was an unexpected rate reduction so people are still thinking it through,” he said.
“So much has happened so quickly.”
According to Mr Anderson the measures announced by the government this week would “solidify sentiment” and put some cash back in people’s hands, he said.
While the Australian property market has been spared the carnage seen in the UK and the US activity has steadily dropped off. In August home loan approvals hit a seven year low of 48,903 ABS data shows.
But with substantial undersupply in most housing markets, a rate cycle now firmly heading down and government sweeteners on the table for would-be buyers, market confidence may return as early as the new year according to Christopher Joye, managing director of Rismark.
“The consensus currently is that rates will fall by a further 100 basis points before the year is out.
“This accumulative reduction in the cash rate of more than two per cent, plus the prospects that this will be passed on by banks, because of the government’s decision to guarantee bank funds, should see activity pick up in the medium term,” he said.
But according to Jason Anderson an earlier upswing in activity could be seen in the lower end of the market – particularly following the government’s increase to the first home buyer grant.
“We should see a bit of a pick up this year – not in the higher end of the market, but more among buyers looking to enter the market for the first time, such as first home buyers and renters,” he said.
Published: 15-10-08
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